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January 17, 2016

When Startup Hype Meets Bureaucratic Guile



How can start-ups complain when the Prime Minister makes the government machinery work on a Saturday evening to unveil plans for making the country more Start-up friendly?

The media coverage had set expectations high. Lowering of Capital Gains tax - including apparently plans to do away with it. And the Evil Startup / Angel Tax was as good as abolished. Unfortunately, The Devil, as they say, lies in The Details (Page 33 onwards to be specific).

Are you the founder of a company that's 5 years and 1 day old? Sorry old chap, your baby is no longer a Startup. Regardless of the age bias, it looks like most of the benefits under the #StartupIndia schemes will accrue only to companies that are a part of government supported / recognized incubators. Here's the extract from the official document:
In order for a “Startup” to be considered eligible, the Startup should:
• be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India; or
• be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or
• be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP ( Department of Industrial Policy and Promotion), from an Incubator recognized by GoI; or
• be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI* that endorses innovative nature of the business; or
• be funded by GoI as part of any specified scheme to promote innovation; or
• have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.
In addition, to qualify for any of the tax breaks,  your firm's "innovation"  needs to be whetted by "An Inter-Ministerial Board setup by DIPP".

And, according to the document at least, there are no plans to do away with the "Startup / Angel Tax" (which treats equity investments over Fair Value as income in the hands of the company). All it says (after describing the issue beautifully) is: "Currently, investment by venture capital funds in Startups is exempted from operations of this provision. The same shall be extended to investment made by incubators in the Startups."

"Start Up India, Stand Up India" is clearly a great booster for government supported incubators and startups associated with them. But what does it have for "other" Startups and Investors - including the founders of Uber and SoftBank - who were in attendance at the event? Just the opportunity for a selfie with the PM?

Agree or feel differently about the issue? Chime in on LinkedIn.

Related Links: 

Deepak Shenoy's analysis of #StartupIndia on his blog here.

Praveen Chakravarty (in Mint) has a problem with the government using tax payer money for investing into the risky asset class of Venture Capital funds.

Internet & Retail entrepreneur K. Vaitheeswaran (in YourStory) also dislikes government getting into funding and considers the proposal relating to making it easier to close down failed businesses to be the most important.

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